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US Supreme Court Holds No Limit to Number of Years for Which Copyright Infringement Damages Are Recoverable Under the “Discovery Rule”
Thursday, May 16, 2024
For copyright infringement lawsuits timely filed by plaintiffs availing themselves of the “discovery rule” — to determine when their infringement claims accrued — the US Supreme Court has issued a decision concerning the extent to which damages are recoverable.

See Warner Chappell Music, Inc. v. Nealy, No. 22-1078, 2024 WL 2061137, at *2 (US May 9, 2024).

The case holds that a plaintiff with a timely claim under that rule can obtain monetary relief no matter when the infringement occurred. Stated otherwise, there is no time limit on monetary recovery. Because the question on interlocutory appeal to the Court was limited to whether a timely claim under the discovery rule may obtain “retrospective relief for [an] infringement” even if it “occurred[ed] more than three years before the lawsuit’s filing, the Court’s 6-3 decision assumed (without deciding the validity of) the applicability of the ‘discovery rule.’” 

Under the Copyright Act’s statute of limitations, a copyright owner must bring an infringement claim within three years of its accrual. Federal courts have created two rules determining when infringement claims accrue: the standard “incident of injury” rule and the discovery rule. For the incident of injury rule, a claim accrues when an infringing act occurs. Under the discovery rule, a claim accrues when the plaintiff knew or reasonably should have known about the infringement. In its confined review, the Court majority, relying on the text of the Copyright Act, made clear that for claims timely brought under the discovery rule, no time limit exists on monetary recovery, and a copyright owner is entitled to damages in an infringement suit no matter when the infringement occurred. 

While the decision rectified a longstanding circuit court split concerning whether, and to what extent, there should be a time limit applicable to copyright infringement damages available for claims filed under the discovery rule, the opinion of the dissenting judges simultaneously raised questions regarding the viability of that rule. In their dissent, Justices Neil Gorsuch, Clarence Thomas, and Samuel Alito harshly criticized the discovery rule, claiming the Copyright Act does not tolerate the rule as applied in Nealy and opined that anything the majority opinion says about how the discovery rule operates promises to be a “dead letter.” In the view of the dissenting judges, the discovery rule should only be applicable in cases of fraud or concealment.

Factual Background

In the 1980s, Sherman Nealy and Tony Butler formed Music Specialist, Inc., through which they created and copyrighted several musical recordings. Between 1989 and 2016, Nealy served two separate prison sentences. While Nealy was incarcerated, Butler formed his own music company and, without Nealy’s permission, licensed Music Specialist’s copyrighted musical portfolio to Warner Chappell Music, Inc. and Artist Publishing Group. One of the copyrighted works was interpolated (incorporated with minimal alteration) into Flo Rida's 2008 hit song “In the Ayer,” which sold millions of copies. The song was likewise licensed to several television shows, including the popular “So You Think You Can Dance.” In 2018, Nealy filed a copyright infringement action against Warner Chappell Music and Artist Publishing Group.

Case History and Legal Arguments

Although the Copyright Act has a three-year statute of limitations, Nealy argued he was still entitled to damages under the discovery rule because he did not learn about the alleged infringement until he was released from prison. The defendants did not challenge the applicability of the discovery rule. Rather, they argued that even if Nealy’s action was timely, he could not recover damages for any infringement that occurred more than three years before his 2018 lawsuit. The defendants relied upon a 2014 Supreme Court decision, Petrella v. Metro-Goldwyn-Mayer, Inc., in which the Supreme Court, refusing to apply the equitable doctrine of laches to copyright claims, stated that the Copyright Act “bars relief of any kind for conduct occurring prior to the three-year limitations period.” However, in the recent Warner Chappell decision, the Court clarified that Petrella does not support a three-year damages cap where the discovery rule applies. Instead, the Court said that Petrella “merely described how the limitations provisions works when a plaintiff has no timely claims for infringing acts more than three years old.” In Petrella,the plaintiff did not sue under the discovery rule. 

For years, Circuit courts have split over the meaning of Petrella. For example, the Second Circuit in Sohm v. Scholastic Inc., 959 F.3d 39, 49 (2d Cir. 2020), held that under Petrella, recovery may be unavailable if the alleged copyright infringement occurred more than three years prior to the plaintiff filing suit, even if the claim is timely asserted under the “discovery rule.” Conversely, the Eleventh Circuit in Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1331 (11th Cir.), held that when copyright claims accrue under the discovery rule, infringing actions are considered a singular claim, and a plaintiff may recover damages from the start of the infringement, regardless of how long ago it occurred. The Supreme Court’s decision in Nealy sides with the Eleventh Circuit and makes clear that should there ever be a time limit to copyright damages, it must come from the text of the Copyright Act’s remedial sections.

While the dissent in Nealy was clearly prepared to rule that the discovery rule is not a viable theory to sustain otherwise untimely claims under the Copyright Act, the majority sidestepped the issue, which it found was not properly presented in this case. Nonetheless, the majority acknowledged the validity of the assumption “that the discovery rule governs the timeliness of copyright claims,” acknowledged that the issue has never been decided by the Court and went so far as to reference the rule as the “so-called discovery rule.” These sidebars may suggest to a close reader that if presented with the discovery rule as a key central issue in the context of a different case, the majority might also be willing to join the dissent in eradicating the long-standing rule.

Potential Industry Impact

Organizations such as the US Chamber of Commerce and the Electronic Frontier Foundation have argued that allowing damages to be recovered for harm incurred more than three years prior to the filing of an infringement claim will be harmful to businesses and encourage “copyright trolling.” The American Intellectual Property Law Association, by contrast, contends that eliminating the discovery rule and limiting damages for infringement claims “would place individual artists and small businesses, who may lack the resources to engage in continuous monitoring, at an unfair disadvantage.”

While the Recording Industry Association of America has argued in favor of the defendants, it also has cautioned that, due to advances in technology, including generative artificial intelligence, there should still be a means to pursue damages in the rare instances when infringement is intentionally concealed or otherwise “undetectable as a practical matter within three years of the infringing act.”

Ultimately, the Supreme Court’s decision to grant retrospective relief beyond a three-year lookback period in cases where the discovery rule is applied could have a significant impact on copyright infringement litigation in the entertainment industry, among other industries. On the other hand, and perhaps more notably, the dissent’s criticism of the discovery rule altogether suggests that the rule and its applicability to copyright cases may be short-lived.

The Supreme Court decision does not change legal precedent regarding monetary relief available to plaintiffs who file timely claims under the “incident of injury rule,” which allows for damages or profits only for infringements occurring in the three years prior to commencement of the suit. The decision presents a potential financial minefield to defendants in cases brought under the discovery rule more than three years after the alleged infringement began.

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